A growing number of states are looking at luxury real estate as a new source of revenue, and the move is already sparking backlash. Rhode Island has introduced one of the most aggressive measures yet, a surcharge aimed at second homes valued above $1 million. The levy has been cheekily dubbed “The Taylor Swift Tax,” since the pop star owns a famous beachfront mansion in the state.
Brokers warn that the policy could drive away wealthy buyers and punish second-home owners who are already among the area’s biggest financial contributors. They argue that these residents tend to pay large property tax bills while using very few local services. Many of them spend only a couple of months in beach towns like Newport and Watch Hill, but during that time, they pour money into hotels, restaurants, and local shops.
Under the new law, second homes not occupied for more than half the year will face an additional charge of $2.50 for every $500 in assessed value above the first $1 million. That is added on top of existing property taxes. In Taylor Swift’s case, whose Watch Hill estate is valued at roughly $28 million, the extra tax will come to around $136,000 a year, pushing her annual bill to nearly $340,000.
Real estate agents say the move comes at the worst possible time. Middle-class families and younger buyers are already locked out of the housing market, while wealthy, all-cash buyers are fueling the luxury side. States under budget pressure are turning to high-end homeowners to fill the gap. But some argue this strategy risks discouraging investment in local communities.
Rhode Island is not alone. Montana recently passed a tax system that favors full-time residents while imposing heavier rates on second homes and short-term rentals. The change is expected to increase taxes for seasonal homeowners by almost 70 percent on average. Local agents warn that this approach will not only affect wealthy newcomers but also long-time residents who depend on rental properties for income.
Other regions are experimenting with similar taxes. Cape Cod is weighing a transfer tax on homes over $2 million, while Los Angeles introduced its “mansion tax” in 2022. The city had projected more than a billion dollars a year in new revenue, but so far collections have fallen short. Experts point to reduced transactions and slower sales as a major factor. When wealthy buyers and sellers pull back, the overall housing market suffers.
Policy analysts caution that these targeted taxes are politically popular but rarely efficient. They may raise short-term revenue, but they create uncertainty for buyers and sellers who can simply choose to move their money to another state. Already, some Rhode Island buyers are considering coastal Connecticut towns that do not impose such taxes.
For supporters, taxing the wealthy seems like a straightforward way to ease housing costs and fund public budgets. Critics argue it risks backfiring by discouraging those who bring substantial spending power into seasonal towns. The real question is whether these new taxes will generate lasting benefits or simply push wealth in search of friendlier markets.
